How would you structure this L/O deal? - Posted by Daryl

Posted by Daryl on May 25, 2000 at 12:59:44:


How would you structure this L/O deal? - Posted by Daryl

Posted by Daryl on May 25, 2000 at 08:19:03:


I want to buy this house by L/O and I want to sandwich L/O it to a t/b.

Asking: $64,900
3 bdm
1 full bath
900+ sq feet
20 years old
4 foot concrete foundation, (no basement)
prop size:50 x 100

Should I offer maybe $60,000 with 0 down and $500 per month for xx years so that MY monthly payment would be low enough to get a pos cash flow from my new t/b? I’m not even sure If I am allowed to do ammortization for THEIR house. That’s where I’m a little unclear. I would like my payment as low as possible but I don’t want it to be that low that my seller will not have his mortgage covered.(Does this matter?)

Could somebody please structure this possible deal including ammortization.

Hypothetically for now we’ll say the seller’s mortgage payment is $600/moPI.

I will be doing my Due Dilligence(Sp) but I just thought I’d get a head start in knowing how to present the seller with my L/O offer.

Thank you Very Much!!
(first deal)
Please feel free to give as many examples as possible!


Re: How would you structure this L/O deal? - Posted by B.L. Renfrow

Posted by B.L. Renfrow on May 25, 2000 at 11:38:37:


I agree with Steve (NC) below; you MUST have more info before you even think about structuring an offer.

Also, have you sat down with the seller to find out exactly what his or her NEEDS are? Until you know the answer to that all-important question, it’s impossible to know whether a L/O offer even makes sense.

Assuming it DOES (i.e. the seller has no immediate NEED for cash and wants primarily to be rid of the monthly payment) then it’s time to look at the other factors.

The fastest way to be OUT of the creative RE business is to NOT know your numbers. By that I mean, you MUST know:

*The FMV (fair market value) of the property. This is determined by checking comps. Remember, the seller’s asking price may bear little relation to FMV.

*What is the underlying financing on the property?

*What is the seller’s monthly PITI payment?

*How much equity does the seller have?

*What are market rents for similar properties?

IF the seller’s needs can be met by a L/O offer, and IF the numbers make it feasible, THEN you can decide how to structure your offer. As the other post mentions, my usual offer is a monthly payment of the seller’s PITI amount, and an option price of the loan balance at closing…IF those numbers make sense. Sometimes, a property will be over-leveraged such that it does not. I have done a couple deals where the seller has agreed to put up the difference between my payments and his PITI amount, or put in cash at closing. (However, those arrangements carry significant risk, so you have to know going in how you’re going to deal with them.)

If you have, or obtain, the additional info and you want to post it here, we can give you more helpful advice.

Brian (NY)

Re: How would you structure this L/O deal? - Posted by Steve(NC)

Posted by Steve(NC) on May 25, 2000 at 10:36:30:

Well…what you offer should have alot to do with what there payments are. You need to find out what they are paying? Is it $400…$500…then i go from there.
A way i like to do it is tell them i will cover their monthly payment and buy it for the balance of their loan when that time comes.
You need to know…I mean know…what fair market rent is! Is it $600??
Ok… at 900 sf you better get in this thing for…nothing…and get it cheap!
You lost me on the amortization thing??

Your price with seller: $600mo
$6X,000 sale price
2-3 year term
With your tenant/buyer:
$600-700 mo
3-7% option money
1 year

Profit…the option $ upfront…then the spreads between the rent and sale price.

Hope this helps.